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Business Organizations Law

Abstract

What is the purpose of a corporation? To many people, the answer to this question seems obvious: corporations exist to make money for their shareholders. Maximizing shareholder wealth is the corporation's only true concern, its raison d'être. Devoted corporate officers and directors should direct all their efforts toward this goal.

Some find this picture of the corporation as an engine for increasing shareholder wealth to be quite attractive. Nobel Prize-winning economist Milton Friedman famously praised this view of corporate purpose in his 1970 New York Times essay, "The Social Responsibility of Business Is to Increase Its Profits." To others, the idea of the corporation as a relentless profit-seeking machine seems less appealing. In 2004, Joel Bakan published The Corporation: The Pathological Pursuit of Profit and Power, a book accompanied by an award-winning documentary film of the same name. Bakan's thesis is that corporations are indeed dedicated to maximizing shareholder wealth, without regard to law, ethics, or the interests of society. Thus, as Bakan argues, corporations are "dangerously psychopathic" entities.

Whether viewed as cause for celebration or for concern, the idea that corporations exist only to make money for shareholders is rarely subject to challenge. Although there is a tradition of scholarly debate among legal academics on this point, it has attracted little attention outside the pages of specialized journals. Much of the credit, or perhaps more accurately the blame, for this state of affairs can be laid at the door of a single judicial opinion: the 1919 Michigan Supreme Court decision in Dodge v. Ford Motor Company.

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This article predates the author's affiliation with Cornell Law School.